I especially like the idea relating to tax treatment of its author contained in the final paragraph that reads:

"Alex S. Gabor is the author of “Bonanza – Profiting During the Real Estate Depression – How to Make a Killing During the Real Estate Bust”, an electronic book being readied for release in 2007. He is a freelance writer living in Hollywood. He spent 25 years investigating and working in the mortgage banking industry and is the inventor of zero interest mortgages. He is a major proponent of changing the current tax laws to eliminate mortgage interest deductions and replace them with principal reduction credits to encourage debt free home ownership and affordable housing."

Well this may just be the norm, but I cannot believe how many people in SD County did not pay their Property Taxes lately!And a majority of them have their homes listed for sale.A house 2 doors down from us was bought for 460K in 8/04 and is listed for 440K and they never paid the Property taxes! Underwater!I also found some people did not pay property tax on 3 parcels! We bought our home in 4/04 for 399K and put 100k down.The realtor tried to get us to buy a 425k home and I refused, I knew the prices were inflated, even on our home we sold in 4/04 for 380K that we bought for 180K in 2001...Over priced...The worst is yet to come...

Notice that some of the worst projections are for CA. Even if you don't believe we are going to see a big drop in prices, this report still supports the idea that now is not a good time to be buying into CA real estate.

Its a beautiful day today in SoCal. High 86 degrees here and humidity just 24 percent. What an ideal day to go out and find some new marks to participate in a brilliant mortgage scam...

A network of scam artists convinced unwitting investors to buy houses using questionable loans and then backed out, leaving the investors on the hook for as much as $5 million apiece, according to a lawsuit filed Friday in Riverside County Superior Court.

Temecula attorney Richard Ackerman filed the suit against Jovane Investments on behalf of an anonymous client, who he said was duped into buying five houses in and around Murrieta in early 2005.

The purchases allegedly relied on mortgage loans brokered by Stonewood Consulting Inc., Ackerman said. Stonewood isn't named as a defendant in the suit, but the company and its president appear to be at the center of tangled web of financial advisers and family members who were involved in the alleged scheme, he said.

Stonewood representatives did not immediately respond to e-mail messages or to calls to the company's Murrieta office and its president's cell phone.

According to the suit, the anonymous plaintiff is stuck with 10 loans and payment obligations of more than $20,000 a month, far beyond her ability to pay.

All told, the alleged scheme involved as many as 400 investors and an estimated $1.2 billion of property, Ackerman alleged in the complaint.

The district attorney's white-collar crime division began to investigate the matter late last year, Kelly Hansen, a senior supervisor in the office, said Friday. Hansen declined to comment on the specific case, but said it is one of 19 cases of alleged mortgage fraud the division is pursuing. Mortgage-fraud scams are particularly common when real estate values are already skyrocketing, as they were in Riverside County from 2003 through 2005, Hansen said.

The alleged scam worked like this, according to Ackerman and another attorney whose clients were involved: An investor would buy two, three or as many as eight houses within days of each other. Stonewood would apply for loans on behalf of the client, typically for two loans totalling 20 percent to 25 percent more than the appraised value of each house. The investor would pay the seller close to the asking price, typically $450,000 to $600,000. Jovane Investments would then pocket the excess cash, often $100,000 to $120,000.

Part of that money would be used to make regular mortgage and tax payments on the houses, the attorneys said. It seemed to be a great deal for the investors, the suit alleges, so they would bring in friends and family members. Most were middle-class professionals with annual incomes of $40,000 to $70,000, and many of them were nurses at Rancho Springs Medical Center, Ackerman said.

The cash from each new round of loans was used to cover the regular mortgage and tax payments on the last round, giving the arrangement the form of a classic "pyramid" scam, Ackerman said.

Aside from Jovane, the suit names Sunburst Financial Systems Inc., Oetting Enterprises and several lenders as defendants. The suit also cites payments among the defendants and other parties, including Stonewood Consulting and Hendrix Montecastro, Stonewood's chief executive; and his mother, Helen Montecastro, whom Ackerman said is a nurse at Rancho Springs. Ackerman said he expects to add additional defendants to the suit.

Ackerman said he was still trying to understand the exact relationship among the various participants. But financial documents and recorded telephone calls indicate all were involved, he said: The monthly mortgage payments came from Oetting Enterprises, known most recently to be based in Palm Desert; Jovane Investments was listed on one typical mortgage application as a securities firm managing $96,000 in a clients' assets, Ackerman said.

Sunburst is licensed to do business in Riverside County as Jovane Investments, according to county records. Sunburst is registered to a Chris Oetting of Palm Desert, according to state records.

Investors had no written guarantees that Oetting Enterprises would continue to make the monthly mortgage payments, said Ashley Abano, a San Diego attorney retained by two families that bought houses in the arrangement.

Things began to come apart in the fall, Abano said, when Oetting Enterprises simply stopped making payments on most of the loans. One of the families had taken out loans on eight investment properties and refinanced their own house, Abano said. The family received nine notices of default since mid-December, he said.

In most cases, the families put up little or none of their own money, the attorneys said. But several already have seen their credit ratings plummet, and several are in danger of being evicted from their own homes, the attorneys said.

Banks and other lenders can typically cover part of a defaulted loan by taking possession of the house and selling it.

"The lenders are the biggest victims of all," Ackerman said.

An investor with four, five or six mortgages who attempts to buy another house on credit would set off red flags among lenders, Ackerman noted, especially if he or she had no proven income from renting out the properties. But because most of the loans were completed within days of one another, they hadn't appeared on credit reports by the time the lenders checked, Ackerman said.

Ackerman's own client chose to sue anonymously after she received nonspecific threats over the telephone. Ackerman said he would apply for class-action status next week, a move that would allow him to represent numerous other investors who aren't already aware of the lawsuit.

Abano said he hadn't reviewed the complaint Ackerman filed, but might recommend that his clients join the suit after doing so.

Chris Oetting couldn't be reached for comment. Hendrix Montecastro didn't immediately respond to messages left on his cell phone and at Stonewood's office Friday afternoon. Helen Montecastro also could not be reached.

Stonewood's attorney, Bill Sauls, was in meetings Friday afternoon and couldn't be reached, according to another attorney in his San Diego office, who acknowledged the firm had received the lawsuit. Ackerman said Sauls has denied that Montecastro and Stonewood are involved with Jovane, a claim Ackerman rejected.

A San Diego financial adviser said three of her own clients were involved in the operation. Including investors known to the adviser, to Ackerman and to Abano, the alleged scam took in at least a dozen investors with two to three dozen properties.

"The total number of loans affected by Jovane-related activities is likely in the hundreds, if not thousands, within the Temecula/Murrieta area," the complaint filed Friday alleges.

Depending on the number of properties involved, and depending on how heavily the properties are concentrated in individual neighborhoods, the alleged scam could levy a big blow to local real estate values, according to Ackerman and one prominent real-estate agent.

Large numbers of empty, foreclosed homes in a neighborhood can make it difficult for the banks to sell them for close to the amount of the mortgages they issued. The empty homes for sale can also force other sellers to slash their prices.

Ackerman estimated that renters occupied half or more of the investment properties, but said they were not paying nearly enough to cover the mortgage payments.

Rising numbers of foreclosures last year have already begun to undercut the market, economists, analysts and real estate agents have said.

In Riverside County, one notice of default ---- the first step in foreclosure proceedings ---- was issued for every 330 residents in September, according to RealtyTrac, an information provider. That rate has been rising for more than a year and is now the highest rate in the state.

I think these are probably cases where the banks are not agreeing to discounts, but are simply putting them on the market after foreclosure as REO. An example in the neighborhood where my rental resides :

2443 Burgener Blvd, 92110

sold 10/25/04 for $725K

sold 10/3/05 for $790K (was unoccupied for the most part from what I observed)

Foreclosure in June 2006. Bank (Countrywide) took possesion at a recorded value of value of 670K. Currently on the market as REO for 614K. Great neighborhood, crappy house. Probably not a great deal at 614K. But getting there.

In a year the price went from $790k to $614k? That is a 22% decrease.

If you have the time, can you keep us posted on this property. I am always interested in seeing what is really happening on the ground.

Update:This property was just re-listed at 584,900. REO. Has not been lived in or properly maintained since the 10/3/05 purchase. Another 8 months and 50-100K on the price and it becomes a tear-down opportunity.

Prediction: More pain for homeowners

A glut of almost 1 million homes sitting vacant may mean another downturn in the housing market, analysts say.

February 5 2007: 12:26 PM EST

CHICAGO (Reuters) -- A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note released Monday.

"Now that oil prices and mortgage rates have stopped falling, we will be back lamenting the downturn in the housing market and its spreading effects on the economy in the second quarter, much as we were in the summer and fall 2006," Merrill Lynch economist David Rosenberg wrote.

"Looking at the inventory backlog and still-stretched affordability levels, this story is far from over."

The Federal Reserve's policy-setting Federal Open Market Committee cited "tentative signs of stabilization" in the housing market last week when it voted unanimously to keep interest rates on hold.

Pending home sales jumped a stronger-than-expected 4.9 percent in December, the biggest gain since March 2004, supporting ideas that the worst was over and the housing slowdown would not tank the broader economy.

But Rosenberg called the home sales data "more of a weather report than any serious commentary on the real estate market," pointing to unseasonably warm weather in December - typically a slow period for home sales - that likely spurred demand.

Instead, he focused on a Commerce Department report showing the homeowner vacancy rate rose to 2.7 percent in the fourth quarter, well above the year-earlier level of 2 percent.

That suggests a glut of almost 1 million homes sitting vacant, which will likely pressure selling prices for an extended period, Rosenberg said.

Goldman Sachs analyst Jan Hatzius noted that the vacancy rate had fluctuated between about 1 percent and 2 percent for the past 50 years.

"By itself, this would point to a fairly enormous supply overhang and little prospect of a bottom any time soon," Hatzius wrote in a research note.

The article talks about several other currencies and how they moved in response to the ECB's meeting statement (similar to the Fed over here I believe). But this is the key part, not a lot of specifics, but at least an outsider's view of what is going on in the US:British Pound The Bank of England's decision to leave interest rates unchanged triggered a major sell-off in the British pound against the US dollar, Euro and Japanese Yen. The most interesting aspect of today's move is the fact that trader positioning was so misaligned with analyst expectations. Given the narrow vote that supported the last rate hike, there was little chance for a follow-up move today. However the sharp divergence between UK and Eurozone monetary policy has earned EUR/GBP the status as the day's most market moving currency pair on a percentage basis. The sell-off in the GBP/USD was exacerbated by a report from the Wall Street Journal that UK based HSBC was forced to set aside 20 percent more capital (most likely in US dollars) to cover the delinquencies in the US sub prime mortgage market. The fear that HSBC will struggle to recover from this has sent the company's shares down to an 8 month low. However the blowup in the sub prime market has even greater significance. We are sure that HSBC, who is the world's third largest bank, is not the only ones to suffer from the growing delinquencies in the US sub-prime lending market. If this problem exacerbates, it may be the first sign that the US economy is in trouble. The UK trade balance is due for release tomorrow and the strong level of the pound could push the deficit higher.

Feb. 8 (Bloomberg) -- Shares of U.S. mortgage lenders plunged after New Century Financial Corp. and HSBC Holdings Plc said losses from bad home loans are piling up faster than they expected.

The stock of Irvine, California-based New Century fell $10.92, or 36 percent, to $19.24 in New York Stock Exchange composite trading, the biggest decline since October 1998. Accredited Home Lenders Holding Co. lost 6 percent to $27.25, Novastar Financial Inc. tumbled 11 percent to $18.31 and American Home Mortgage Investment Corp. slid 8.1 percent to $33.06

I do not know the definition of a "housing crash" but in my mind I am thinking if prices decline 25%+ over a two or three year period, then I would consider that a crash.

Any thoughts on the definition of a crash?

By the way, my so cal observation of prices specific to me include condos in a single complex were several sold at the peak for $235-245k, and now several are listed between $189k and $195k. A 20% decline in a 12-18 month period. Wow.

It's their default position

HERE'S what Dave Hennigan knows about the four-bedroom house tucked away on a tranquil Corona street: The owner is a woman, and she's $8,155 behind on her mortgage payments.

Maybe she had a messy divorce or expensive illness. Maybe she has been spending too much and saving too little. Hennigan, a 45-year-old Riverside County real estate agent, doesn't plan to ask.

As he navigates the suburban streets, map in hand, he rehearses his pitch. "Your name came up on a list of people who might be interested in selling their house."

That sounds neutral, even sympathetic. If it works, he'll have his first distressed seller.

There's a lot of speculation about where the housing market is headed. Some analysts contend the shakeout is already over. Others maintain it hasn't even begun.

Hennigan and the company he works for, Home Center Realty, don't have the luxury of waiting to see how the story will play out. They need to make a living now, and they're betting that things are going to get worse. Maybe much worse.

During the four-year boom that ended last summer, Home Center expanded from 15 agents to 80 in three offices. The roster of agents has since sunk to 52, only about half of whom are active.

"The rest are looking for side jobs at McDonald's," said Home Center President Jason Bosch. "It happened overnight."

Hennigan works in the Norco office, a small building set on a hill off Interstate 15. He's been full-time since August 2005, when he quit his job as a route salesman for Peet's coffee. He gets a salary to help run the place, but to pay his own mortgage he still needs to earn commissions buying and selling houses.

In this queasy market, sales are slumping. Sellers remember the boom and want more money than they can get, while buyers feel they have unlimited time to make a decision. An agent's best prospect for a sale is someone who must act now — a homeowner told by a lender to pay up or get out.

These owners are in crisis. They need to refinance if they can or sell and move into something affordable. If they had an easier option, they wouldn't be behind in their payments in the first place.

Home Center Chief Executive Ron Barnard says that personally, he finds foreclosure sad, even tragic. "But as a business owner, I think it's great."

The new issue of the company's 22-page listings magazine, distributed outside supermarkets and drugstores, will tout nothing but distressed and foreclosed properties: 95 of them, many nearly new, each priced at around $250,000.

"When you throw out the words 'foreclosure,' 'short sale,' 'repo,' the buyer thinks it's a deal," said president Bosch. "It's still very early, but I'm convinced that's where the market is going."

FOR Hennigan, the search for a deal restarts every 10 days, when he gets a packet from United Title Co.

Drawn from public data, it has the names, addresses and loan information for people in Riverside County who are in default, which usually means about three months behind. They generally have another three months before the bank seizes the house.

"They get sold these houses on the idea that they can handle the mortgage, and then they can't," Hennigan said in his cubicle early one afternoon. He glanced at the sheets and reeled off some of the amounts due: $13,708 … $5,209 … $12,776 … $15,149.

When he combs through the listings, Hennigan ignores anyone who owes more on a home than it is worth. These folks are in too much trouble to be saved. What he's looking for are owners who, after closing costs and a 6% agent's commission (half to Hennigan, half to the buyer's agent), will walk away with their credit rating intact and some cash to start anew. This will give them an incentive to deal.

He likes to pay his unannounced visits late in the afternoon, betting that the wife will be home and the husband not. "I can't remember the last time a man said, 'Let's sit down and talk,' " Hennigan said.

Coming along on this afternoon's prospecting trip is Jerald Becerra, a former body-shop estimator for insurance companies who became a full-time agent in August. "I'll stay in the car, keep the engine running," he says. "Just in case someone comes out with a shotgun."

When they reach their target house, they don't approach it immediately. Instead, they warm up with the neighbors. Maybe they're also broke. "It's Dave from Home Center Realty," Hennigan shouts at a woman he glimpses behind the drapes. She instantly retreats into the recesses of the house.

He leaves a flier he developed when prices were zooming upward. "Are you a first time buyer?" it asks. "Are you looking to refinance? Are you looking for that 2nd or 3rd home?"

In October, he added a fourth line: "Maybe you are in notice of default or foreclosure!"

The target home was built in 1988. The owner refinanced two years ago, bringing the mortgage up to $327,000. Based on comparable recent sales, even in this lousy market the house could go for as much as $500,000.

Hennigan walks up as Becerra hangs back. Someone is surely home. An upstairs window is wide open. A white Honda is crookedly parked in the driveway. Yet no one answers. It's frustrating. You can't help someone who's hiding.

This neighborhood is a bust. But there are so many others.

*

A DECADE ago, the Inland Empire was one of the foreclosure capitals of California. The area thrived in the late 1980s as refugees from L.A. and Orange counties arrived in search of cheap housing. Then the recession hit. Values cratered and owners bailed.

Smart agents could make a good living finding buyers for these houses, which often went for 30% under market value. That was how the two executives running Home Center got their start. Bosch, 31, grew up in Victorville and was an apprentice loan officer at 17. Barnard, 55, is the son of real estate agents in Whittier who began by buying and rehabbing foreclosures for a profit.

Despite working side by side the last few years, they have sharply different views about where the market is going.

Barnard, who bought five houses around the county as investments shortly before the market peaked, is the optimist. His argument: Population continues to rise, which means demand won't slacken. Builders have switched to making smaller homes, which are more affordable.

"A lot of people are sitting on the sidelines," Barnard says, "but in the middle of summer they'll come back."

Unless they don't, which is why he's encouraging his agents to learn everything they can about foreclosures.

Bosch, on the other hand, thinks the residential real estate market will soon revisit the horrible days of the mid-'90s — and then get worse.

"I have no doubt that we are entering the next phase of an unprecedented market," he says. "One that Southern California has never seen."

Sure, there's been employment growth in the area. But much of it, Bosch argues, was related to real estate: construction, lending, appraising, title search, termite inspection, pool building, etc. This was a boom that fed upon itself.

The biggest problem, Bosch believes, was created by the lenders. They used to be cautious. They'd want the borrower's tax returns, pay stubs and bank statements, and it would all have to match up. The borrower would make three times his monthly payment. He'd have to scrape together a down payment.

Sub-prime loans changed all this. Originally these high-interest loans for credit-challenged buyers were a small segment of the market. But as houses got more expensive, fewer buyers qualified under the traditional guidelines, so they went sub-prime.

Lenders would take their word on income. They no longer needed down payments. They didn't worry that their loans would soon reset to higher interest payments.

Nobody cared too much as long as prices went up, although many people in the business knew the day of reckoning wasn't canceled but merely postponed.

"To make a living, you had to push a product you didn't believe in," said Aimee Quigley, a Home Center mortgage broker. "It was like being a defense attorney where you know your client did it, but you have to say he didn't."

Quigley says she tried to emphasize how quickly these loans would adjust, causing payments to balloon, but the message rarely got through.

"Nine out of ten times when these loans closed, we would sit there and say, 'How long can they hold it together?' "

Now the initial wave of those who can't hold it together need to do something, but Quigley can't help them. Some sub-prime lenders have gone out of business; other banks have tightened their standards. Money isn't free anymore.

In Home Center's near-vacant Ontario office, Raul Palma shuts himself into his windowless office. A 32-year-old former lineman for Southern California Edison, he became an agent a year ago for the same reason the rest of them do: "It's all about the money."

He looks at his "motivation board" on the back of the door — pictures of luxury homes, luxury cars, luxury vacations. Then he starts playing instructional CDs on his computer. They've been rewritten for the housing downturn, offering blunt and occasionally harsh suggestions for Palma to repeat to reluctant clients.

Did you know the market is no longer appreciating? the disembodied salesman intones with Baroque music in the background.

Palma dials one number after another from a list of houses being sold by their owners. He only occasionally connects with a live human being, who generally hangs up on him.

Have you received ridiculous verbal low-ball offers?

The market, Palma explains between calls, is driving many people crazy. "Some are very distressed. A lot of them are."

Are you familiar with the definition of insanity? It's doing the same thing over and over and expecting a different result.

Jackpot. A man agrees to let Palma come over tomorrow evening. He's been trying to sell his house for $375,000. If Palma has his way, it will be cheaper.

"To get top dollar in today's market, you have to have the cheapest house for sale in the neighborhood," the agent says. "The way prices are falling, in three weeks it will be the most expensive."

*

THAT'S one way markets drift south. Another is through short sales. That's when homes in default are sold for less than what is owed on them. The bank agrees to waive the remainder in the interest of bringing the whole mess to a speedy conclusion.

The trouble is, most people in this situation have two loans. The primary lender has first claim to the money. As a result, the second lender is often unwilling to deal.

Hennigan had a Rancho Cucamonga default fall into his lap. The house had two mortgages totaling $460,000. Hennigan found a buyer who would pay $415,000, enough to cover the first loan but not the second. The first lender agreed to the sale. The second wouldn't respond, despite the agent's daily calls.

A frustrated Hennigan finally asked, "Why is this taking so long?"

"We're getting a thousand calls like this a week," the receptionist said.

Hennigan finally realized that the company he was fruitlessly calling didn't actually hold the second mortgage on the house. It was just a middleman, collecting the mortgage payments for a fee. The loans had been repackaged and sold to Wall Street investors as mortgage-backed securities. They were someone else's problem.Without the permission of both lenders, Hennigan's client couldn't buy the house. Instead, it went to auction, fetching $375,000.

That might have been a bargain for the buyer but it pushed down values for everyone else in the neighborhood — the reverse of what happened during the boom.

Another loser was the owner of the second loan. This investor, whoever it was, was out $85,000. "Banks don't have enough bad loans on their books to say, 'We've got to deal with this,' " Hennigan said. "Within six months, that will change."

Maybe sooner. Home Center agents have 73 homes on the market. Fourteen are being sold in a short sale, with the bank asked to swallow the difference.

If Hennigan barely knew what a default was in September, if he spent December knocking on doors failing to persuade those over their heads to let him help, now the business is coming to him.

Lenders are calling, asking him to photograph houses and evaluate their condition and marketability.

The first two were in Perris. By the time he goes to the third one, in Fontana, he knows what to expect. No point knocking on the door. This house, like the others, is empty. The electricity is off, the grass brown.

It's a foreclosure, something flush times early this decade had pushed to the brink of extinction. In December 2004, there were about 12 foreclosures a week in Riverside and San Bernardino counties. In December 2006, there were 123.

He doesn't have a key, but the back door is open. The carpets are stained, the living room wall has a hole punched in it, and the bedroom doors are missing. Still, it's a solid house. The lender will use Hennigan's report to set a price and then turn it over to the agent to find a buyer. A little paint, a little plaster and it will go for $500,000.

Hennigan doesn't know who the owners were, why they couldn't pay or where they went. It's much better this way. He doesn't have to feel sorry for anyone. Instead, he can concentrate on work.

"People are walking away from their houses," he says. "I'm giddy because I'm going to be so busy."

Record home price slump

Fourth quarter report from Realtors shows largest price drop on record as markets with price declines now outpace those with gains.

By Chris Isidore, CNNMoney.com senior writer

February 15 2007: 2:31 PM EST

NEW YORK (CNNMoney.com) -- The slump in home prices was both deeper and more widespread than ever in the fourth quarter, according to a trade group report Thursday.

Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter of a year earlier, according to the report from the National Association of Realtors. That's the biggest year-over-year drop on record, and follows a 1.0 percent year-over-year decline in the third quarter.

I just shot up the Q4:2006 San Diego report and it sure was bloody. Although many are claiming that the fall wasn't that bad, the nominal price decline of 2006 was greater than the decline of the entire 1990s SoCal bust!

Originally Posted by analysisguyI just shot up the Q4:2006 San Diego report and it sure was bloody. Although many are claiming that the fall wasn't that bad, the nominal price decline of 2006 was greater than the decline of the entire 1990s SoCal bust!

Great site, but don't you think you should use percentages rather than dollar amounts when making such comparisons? Also, if using inflation adjusted methodology, to make an apples to apples comparison, you need to calculate inflation consistently during the period 1976 -2006. The government has been very inconsistent in their method of calculating inflation during that period (see http://www.shadowstats.com)

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